Monday, July 14, 2008

Frontline Ltd., the world's largest owner of supertankers, said a jump in fuel costs may spur owners to sail vessels more slowly to conserve energy, shrinking fleet supply and bolstering ship-rental rates.

The shipper and ``several major owners'' sailed 20 percent slower than normal toward the end of last year after ``low'' demand and record fuel costs hurt margins, according to a May 2 regulatory filing from the company. That cut fleet capacity by about 10 percent and was followed by the biggest two-month gain in freight rates in November and December for at least 16 years.

The possibility of slowing is ``soon again emerging,'' Jens Martin Jensen, Oslo-based interim chief executive officer of Frontline's management unit, said in an e-mail July 10. ``I believe all owners, including ourselves, are monitoring this on a daily basis.''

Supertankers, ships bigger than the Chrysler Building and designed to haul 2 million-barrel cargoes of crude, burn about 100 metric tons of marine fuel a day when sailing at full speed, according to Riverlake Shipping SA, Switzerland's biggest shipbroker. Marine fuel, or bunkers, advanced to a record $754.50 a ton in Singapore July 11, according to prices on Bloomberg.

Frontline fell 0.5 krone, or 0.2 percent, to 326.5 kroner ($64.25) as of 2:16 p.m. in Oslo trading, valuing the shipping line at 24.4 billion kroner. The shares earlier fell as much as 2 percent. The stock has gained 26 percent this year.

Supertanker owners trimmed about $20,000 from their daily fuel costs by slowing down last year, the May 2 filing said. Fuel now represents about 85 percent of daily costs, Jensen said.

Shipping Competitors

Frontline and its competitors sailed at about 12 knots last year, compared with 15 knots normally, according to the filing.

Supertankers are sailing close to their fastest speed for at least two months, according to data complied by Bloomberg.

The average VLCC is moving at 10.45 knots, 13 percent faster than on May 29 when they were traveling at 9.22 knots. The data include ships at anchor. Tanker rental rates are on course for a record year, earning about $107,000 a day, a Bloomberg survey of 13 analysts and brokers this month showed.

Sailing slower would help mitigate a fleet expansion that the International Energy Agency said July 1 will ``massively'' exceed growth in oil demand in the next two years.

Owners decided to slow down last ``autumn,'' Frontline Chief Financial Officer Inger Klemp said by phone July 10. The jump in ship-rental rates after that probably encouraged some to speed up again, she said.

Still, other owners may decide that current rental earnings are too good to sail slower, said Per Mansson, managing director of tanker broker Nor Ocean Stockholm AB.

``It won't happen,'' he said in an e-mailed note today. ``Owners cannot start giving away money in a market like this to improve things at a later stage.''